Sat 27 Feb 2016
News - Key Governance Developments January - February 2017
When governance issues affect the bottom line
Often the impact of poor governance can be felt in companies’ financial performance and stock market valuation – for instance, corporate misconduct may lead to stocks being blacklisted by institutional investors. Not surprising, then, that shareholders whose investments are at risk should be taking a more active role in ensuring that governance structures are strengthened, for example by holding board remuneration committees to account over executive compensation. With governance failures still prominent in the headlines, pressure for change also continues to grow in political circles across Europe. See below some of the most important national and international Governance news
Public pension fund blacklists VW over emission cheating scandal
Luxembourg public pension fund Fonds de Compensation has blacklisted Volkswagen as a result of the company’s emissions scandal. The €16bn investment fund has revealed it placed the German auto manufacturer on its exclusion list in November due to its involvement in violations of environmental standards.
Financial Times (subscription required)Link to articleUK parliamentarians call for better governance of large firms
The UK parliamentary employment and pensions committee has called for large privately-held firms to be subject to the same governance scrutiny as listed companies. It says private firms with more than 5,000 defined benefit pension scheme members should adhere to the Financial Reporting Council code. The committee believes tighter rules, which would affect groups including, John Lewis, Virgin Atlantic and sandwich chain Prêt à Manger, would avoid more corporate collapses like that of retail chain BHS.
BBC NewsLink to articleDeutsche Bank unlikely to pursue former executives over Libor scandal
A report commissioned by Deutsche Bank has found no evidence that former CEOs Anshu Jain, Jürgen Fitschen and Josef Ackermann were personally at fault in the Libor rate manipulation scandal that has led to the imposition of multi-million dollar fines and sanctions on the bank by regulators. At worst, the enquiry concluded, the former CEOs were responsible from an organisational standpoint but not from a misconduct perspective. The bank’s supervisory board is reported to have sought legal advice as to whether compensation payments can be withheld from the executives’ unpaid bonuses.
Handelsblatt Global (subscription required)Link to articleUK governance council seeks greater powers
Britain’s Financial Reporting Council is seeking to extend its oversight to company directors, rather than just auditors, accountants and actuaries at present. The council wants the power to debar board members as part of proposals to reform Britain’s corporate governance code. The council has also undertaken similar work to revise codes on corporate culture and succession planning.
EconomiaLink to articleStandard Life seeks further change at Volkswagen
The investment arm of global insurer Standard Life says it will push for increased board independence at Volkswagen as a critical step toward rebuilding trust in the brand. VW has admitted that it used software to lower diesel engine emission levels when vehicles were undergoing testing. The company insists that its supervisory board considers it has a reasonable number of independent members. Standard Life Investments is also pushing for governance changes at UK retailer Sports Direct over the role of founder Mike Ashley.
ReutersLink to articleBritish asset managers face US-style governance rules
The UK Financial Conduct Authority is considering introducing new governance requirements for fund management groups, alongside an overhaul of asset management fees. The regulator is considering the introduction of mutual fund boards with a majority of independent directors to ensure funds are managed in the best interest of investors, as is required in the US. At present, most governance roles are conducted by fund group employees and there is no requirement for them to be independent.
Financial Times (subscription required)Link to articleFidelity wants shareholder say on executive remuneration plans
Fund group Fidelity International is calling on the UK to allow significant minority groups of shareholders to dismiss companies’ remuneration committees if they disagree with executive compensation plans. Fidelity’s stance goes beyond the industry’s call for annual binding votes on directors’ pay. The fund group says the individuals who chair remuneration committees should be capable of being held personally responsible.
Sky NewsLink to articleGovernance failure costs hit Lending Club profits
Peer-to-peer lender Lending Club has reported losses for the third year running as it continues to struggle with the cost of clearing up after the scandal that resulted in the departure of founder Renaud Laplanche. The company was discovered to have mis-sold loans to one of its most important customers, prompting banks and other institutional investors to pause their buying programmes. Lending Club has had to offer discounts and tighten internal controls, but origination levels remain depressed.
Financial Times (subscription required)Link to articleSamsung CEO arrested in corruption probe
The chief executive of Samsung Group, Jay Y. Lee, has been arrested over his alleged role in the South Korean corruption probe. The special prosecutor’s office has accused Lee of bribing a close friend of President Park Geun-hye to gain favours affecting the succession process at Samsung. A prosecution case against the president of Samsung Electronics, Park Sang-jin, has been rejected by a judge.
ReutersLink to articleIndia investigates Infosys whistleblower allegations
The Securities and Exchange Board of India is investigating complaints by a whistleblower about irregularities in the severance payout granted to former chief financial officer Rajiv Bansal and the acquisition of Israeli software company Panaya. The allegations suggest that current CEO Vishal Sikka agreed to the payout without any formal board approval or clearance from the audit and compensation committees or from shareholders.
Economic TimesLink to article